The South African Reserve Bank (Sarb) has increased the repurchase rate (repo rate) for a fourth successive time by 50 basis points to 4.75 percent as runaway inflation continues depreciating the rand.
This means that the prime lending rate will increase to 8.25 percent.
Sarb governor Lesetja Kganyago today said that 4 members of the Monetary Policy Committee (MPC) preferred the announced increase and 1 member preferred a 25 basis point rise in the repo rate.
Kganyago said that higher than expected inflation has pushed major central banks to accelerate the normalisation of global policy rates, tightening global financial conditions.
He said that the risks to the inflation outlook were assessed to the upside as the consumer price index (CPI) was 5.9 percent in South Africa, just a touch from the bank’s target band of 3-6 percent.
“On balance, and with some exceptions, capital flow and market volatility is expected to remain for emerging market assets and currencies,” Kganyago said.
“Alongside currency depreciation, other risks to the inflation outlook, such as elevated food and fuel prices, have been realised.
“Against this backdrop, the MPC decided to increase the repurchase rate by 50 basis points to 4.75 percent per year, with effect from the 20 of May 2022.”
Kganyago said Russia’s war in the Ukraine was likely to persist for the rest of this year and may have significant further effects on global prices.
He said the war had impaired the production and trade of a wide range of energy, food and other commodities and will continue to do so for some time.
The bank has thus revised downwards its economic growth forecast to 1.7 percent in 2022 from the 2 percent estimated in March.
“This is due to a combination of short-term factors, including the flooding in Kwa-Zulu Natal and the continued electricity supply constraints,” Kganyago added.
“The economy is forecast to expand by 1.9 percent in both 2023 and 2024. At these rates, growth remains well above a low rate of potential, impacted by loadshedding, infrastructure and policy constraints.”
RE/MAX of Southern Africa chief executive Adrian Goslett said this decision was predictable and in line with other statements provided by the MPC.
Knowing that more interest rate hikes were forecasted for the year ahead, Goslett said the question of whether to fix the interest rate on a home loan has come up more and more frequently.
“My hope is that homeowners have planned for these interest rate hikes and have already made room in their budgets to afford the slightly higher debt repayments,” he said.
“The truth is that there are so many unknown variables around interest rate fluctuations that it is impossible to tell with absolute certainty whether fixing your interest rate now will be more beneficial for you in the long run.”
BUSINESS REPORT